UNDERSTANDING DEDUCTIBLES

For most people, figuring out a deductible is mainly a function of lowering their premium. Because a fair number of insureds rarely file a claim on their own policies, applying a deductible to a settlement isn’t something they have experienced. Before this happens to you, it is best to understand how a deductibles impacts your insurance interaction in different situations.

If you have a $500 “dollar deductible” and a $2,000 claim, the insurance company would pay you $1,500 ($2,000 – $500). This type of deductible is common for auto insurance and homeowners insurance. “Percentage deductibles” are calculated differently.

In the case of a homeowners insurance claim, the deductible is based on a percentage of the home’s insured value. So if your house is insured for $100,000 and your insurance policy has a 2 percent deductible, $2,000 would be deducted from the amount you are reimbursed on a claim. In the event of the $10,000 insurance loss, you would be paid $8,000.

Deductibles are different in health insurance where there a single annual deductible for the policy. With an auto or homeowners insurance policy, the deductible applies each time you file a claim.

For earthquake insurance, California residents can purchase a policy through the California Earthquake Authority (CEA). The standard CEA policy deductible is 15 percent of the replacement cost of the home. The CEA also offers a 10 percent deductible for other structures, personal items coverage up to $100,000 and $15,000 in “loss of use” coverage.

Instead of trying to figure things out on your own, turn to the best resource you have: your insurance professional. Sit down and see how different deductibles will affect your premiums and your possible out-of-pocket expenses. Talk about it now while it’s still a hypothetical instead of after the fact.

Investing for insurance is the most excellent choice you’ll ever make. With an insurance to protect you, you can ensure that you have secured yourself and your loved ones from any financial loss that may be incurred in the future.